Reforming Islamic finance: why and how?

• Main Author: Hassan, Rusni
• Format: Article
• Language: English
• Published: King Abdulaziz University Scientific Publishing Center 2020
• Subjects: BPH Islamic Economics; HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/89110/7/89110_Reforming%20Islamic%20finance%20why%20and%20how.pdf; http://irep.iium.edu.my/89110/; https://spc.kau.edu.sa/Content-320-EN-2732

After half a century of development, Islamic finance has grown into an industry that is very different from the ideals envisioned by its pioneers. There have been widespread calls for reform, but the direction of this reform has been a subject of great debate. This paper looks at the current state of the Islamic finance, defining where the main issues lie including a discussion on quantity versus quality. This paper will also propose an appropriate direction of reform that works to refine the current practice and expand the scope of Islamic finance to embody the ideals of its founding pioneers. The researcher utilizes both deductive and inductive methods referring to the wealth of Islamic finance literature as well as observation from her extensive practical experience in the industry as a methodology for this paper. The most important findings are that Islamic finance has thus far achieved great growth, but which lacks in quality. Various Sharīʿah, authenticity, regulatory, and maqāṣid realization issues still lurk. The ideal approach to reform looks at the current state of Islamic finance and attempts to refine the practices of Islamic financial institutions. Furthermore, it is proposed that the scope of Islamic finance be broadened to incorporate the underserved segments of the society including the third sector. The paper recommends that a platform be setup or an authority be commissioned to oversee this transition, and that a talent pool be created to lead the new initiatives and institutions that will result from this reform.